Rwanda reintroduces 18% VAT on hybrid vehicles

From the newsletter

Hybrid electric vehicles (HEVs) in Rwanda will be subjected to an 18% Value-Added Tax (VAT) from the 2025/2026 financial year. However, they will continue benefiting from the 25% waiver on import duties. Rwanda scrapped the VAT on HEVs in 2021. The reintroduction of the tax aims to boost adoption of full EVs. 

• Rwanda Revenue Authority (RRA) data shows that only 512 of the electric vehicles imported between 2020 and 2024 were BEVs (fully electric), while 6,660 were hybrid. 

• The huge gap between the two caught the government's attention because 43% of the hybrid vehicles were manufactured more than 10 years ago; therefore, they had little impact on the environment despite VAT exemption.

More details

• Since Rwanda started incentivising EVs in 2021, the number of electric vehicles has grown from 19 in 2020 to more than 7,000 in 2024, including BEVs and HEVs. The country has more than 4,000 electric motorcycles too.

• The current regulatory policy ensures that fully electric vehicle consumers enjoy zero per cent VAT, import and excise duties. Moreover, EV spare part imports are exempted from the same. The reintroduction of the 18% VAT on hybrid vehicles is expected to make fully electric vehicles look more financially attractive, thus increasing their adoption.

• In the East African region, neighbouring countries like Uganda and Ethiopia have adopted zero per cent VAT on hybrid vehicles. Kenya’s VAT on hybrid vehicles remains at 16%.

• Rwanda's current EV policy landscape is proactive, with the government implementing measures to encourage the adoption of electric vehicles. Currently, there is a total ban on internal combustion engine (ICE) motorcycle registrations in Kigali, which came into effect in January 2025. The reinforcement of EV policies within the country shows Rwanda’s commitment to electrifying transportation.

• The increasing number of charging stations is one of the factors why fully electric cars could thrive in Rwanda. According to UNEP, Rwanda has more than 200 charging stations which accommodate both electric vehicles and motorcycles. Leading the charge is Kabisa with 15 EV charging stations which have both AC and DC chargers.

• Hybrid vehicles typically have a lifespan of 10 to 15 years, depending on maintenance and usage. However, the presence of older hybrids in Rwanda's fleet, with 43% manufactured over a decade ago, suggests that many may be nearing the end of their operational life, potentially increasing maintenance costs and environmental impact due to battery disposal.

• The tax reintroduction may initially face resistance from consumers and businesses that rely on HEVs due to their affordability and hybrid fuel efficiency. Given that Rwanda has had an exemption since 2021, the reintroduction of VAT could create short-term price hikes, potentially slowing the adoption of new HEVs.

Our take

• The government’s focus on promoting BEVs by eliminating VAT on them and imposing it on HEVs creates an immediate shift in consumer behaviour. Companies entering the Rwandan market can capitalise on this opportunity by positioning themselves as leaders in the fully electric mobility space.

• From a business perspective, the policy could stimulate demand for electric vehicle manufacturers, suppliers, and original equipment manufacturers (OEMs) that focus on fully electric solutions.

• Rwanda's strict policies on motorcycles and hybrid cars indicate a strong commitment to electrifying transportation across all sectors. Is this some policy which could be implemented to electrify their public transport?